[Federal Register Volume 75, Number 145 (Thursday, July 29, 2010)]
[Notices]
[Pages 44828-44829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-18608]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62567; File No. SR-NSCC-2010-07]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Amend Addendum
C of Its Rules and Procedures To Implement Risk Enhancements to Its
Stock Borrow Program
July 23, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2010, National Securities Clearing Corporation (``NSCC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-NSCC-2010-07 as described in Items I, II, and
III below, which Items have been substantially prepared by NSCC. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to amend Addendum C of
NSCC's Rules and Procedures (``Rules'') to implement risk enhancements
so that municipal and corporate bonds would be ineligible for lending
through the Stock Borrow Program (``SBP'') and so that Members would be
prevented from lending securities through the SBP that were issued by
that Member or any of its affiliates.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NSCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NSCC has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.\3\
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\3\ The Commission has modified parts of these statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
National Securities Clearing Corporation (``NSCC'') proposes
amending its Rules to implement risk enhancements so that municipal and
corporate bonds would be ineligible for lending through the SBP and so
that Members would be prevented from lending securities through the SBP
that were issued by that Member or any of its affiliates.
1. Stock Borrow Program Background
In the course of daily operations, NSCC's Continuous Net Settlement
(``CNS'') system often requires a number of shares for a particular
security that exceeds the number of shares available to NSCC through
Member deliveries. This can arise for several reasons including
satisfaction of Member priority requests for allocation as well as buy-
ins submitted by Members. To improve the efficiency of the clearing
system in these situations, NSCC's Board authorized implementation of
automated stock borrow procedures to meet these needs for shares of a
particular CNS security.
Members wishing to participate in the SBP notify NSCC each day \4\
of the securities they have on deposit at The Depository Trust Company
(``DTC'') that are available to be borrowed by NSCC. The daytime and
nighttime SBP are separate processes. Members can choose to participate
only in the nighttime SBP, only in the daytime SBP, or in both.
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\4\ By such times specified by NSCC.
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After NSCC's nighttime processing of regular deliveries,
unsatisfied needs that remain in a particular security are borrowed
from Members that identified available securities for the nighttime
SBP.\5\ Similarly, needs in a particular security remaining unsatisfied
at a time designated during the day cycle are borrowed from Members
that have delivered instructions specifying available securities for
the daytime SBP. Shares borrowed are placed in a special CNS
subaccount, and the Member lending the shares is advanced the full
market value of the borrowed shares until they are returned. As shares
become available, borrowed stock is returned through normal long
allocations against the special subaccount.
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\5\ Securities subject to a voluntary reorganization are not
borrowed by NSCC after nighttime processing on E+2 through the end
of the protected period.
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[[Page 44829]]
2. Proposed Amendment to Addendum C of the NSCC's Rules
After reviewing the SBP, NSCC has determined that it faces
increased risks in two situations. Specifically, NSCC has identified
increased risks when NSCC borrows municipal or corporate bonds and when
NSCC borrows securities issued by the lending Member or any of its
affiliates. First, if NSCC is unable to timely close out long positions
in corporate or municipal bonds that were created by loans of such
securities from a Member that becomes insolvent, then NSCC may possess
high concentrations of corporate or municipal bonds that it cannot
deliver to the insolvent Member. Consequently, NSCC bears an increased
risk of loss because it would be forced to liquidate those corporate or
municipal bond positions in thinly traded markets. Second, NSCC incurs
credit exposure in instances where it borrows securities from a Member
that is also the issuer of the securities or is an affiliate of the
issuer. In the event that such a Member becomes insolvent, then NSCC
incurs the additional risk that the securities issued by the Member or
its affiliate and that are lent through the SBP will likely decline in
value.
In both situations, NSCC believes there are certain risks posed by
the SBP that outweigh the benefits to NSCC and its Members.
Accordingly, NSCC proposes amending its Rules so that municipal and
corporate bonds would be ineligible for lending through the SBP and so
that Members would be unable to lend securities through the SBP that
are issued by the Member or its affiliates. Members would be advised of
the implementation date for these proposed changes through the issuance
of an NSCC Important Notice. The language of the proposed changes to
NSCC's Rules and Procedures can be found in Exhibit 5 to proposed rule
change SR-NSCC-2010-07 at http://www.dtcc.com/downloads/legal/rule_filings/2010/nscc/2010-07.pdf.
NSCC believes the proposed rule changes are consistent with the
requirements of Section 17A of the Act \6\ and the rules and
regulations thereunder because the proposed changes would facilitate
prompt and accurate clearance and settlement of securities transactions
by establishing appropriate safeguards and enhanced efficiency within
the SBP process to mitigate risks that the SBP poses to NSCC.
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\6\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would impose
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments relating to the proposed rule change have not been
solicited or received. NSCC will notify the Commission of any written
comments received by NSCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to 90 days of such date if it finds such
longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
Send an e-mail to [email protected]. Please include
File Number SR-NSCC-2010-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NSCC-2010-07. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of NSCC. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available. All
submissions should refer to File Number SR-NSCC-2010-07 and should be
submitted on or before August 19, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18608 Filed 7-28-10; 8:45 am]
BILLING CODE 8010-01-P